SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

--------------------------------------------------------------------------------


                                    FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF


                       THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended July 31, 1998          Commission File Number 0-12927

                         NATIONAL HOME HEALTH CARE CORP.
                         ------------------------------
             (Exact name of Registrant as specified in its charter)

          Delaware                                            22-2981141 
          --------                                            ----------    
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                           Identification No.)

    700 WHITE PLAINS ROAD, SCARSDALE, NEW YORK                    10583  
--------------------------------------------------------------------------------
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code:  914-722-9000

Securities registered pursuant to Section 12(b) of the Act:  None

Securities  registered  pursuant to Section 12(g) of the Act: Common Stock,  par
value $.001 per share.

Indicate  by check  mark  whether  the  Registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such shorter period that  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                  Yes     X                                   No  
                         --                                      --       

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge in definitive  proxy or information  statements,
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of October 26, 1998,  the  aggregate  market value of the Common Stock of the
Registrant,  its only class of voting securities,  held by non-affiliates of the
Registrant was approximately $12,283,728, calculated on the basis of the average
closing  bid and  asked  prices of such  stock on the  National  Association  of
Securities  Dealers Automated  Quotation System on that date, as reported by the
National Association of Securities Dealers, Inc.

The number of shares outstanding of the Registrant's Common Stock on October 26,
1998 was 5,197,167.

Portions of the  Registrant's  Proxy  Statement  for its 1998 Annual  Meeting of
Stockholders are incorporated by reference in Part III hereof.


<PAGE>

                                     PART I

Item 1.    Business

General

         National  Home  Health  Care  Corp.   (the  "Company")  is  a  Delaware
corporation  which was  incorporated  on July 27,  1983 under the name of Family
Treatment  Centers of America,  Inc.  Effective  December 14, 1984,  the Company
changed its name to National HMO Corp.  and  effective  December  20, 1991,  the
Company  changed  its name to  National  Home  Health  Care  Corp.  The  Company
completed  its  initial  public  offering  in  December  1983.  The Company is a
provider of home health care services  throughout the New York City metropolitan
area,  including  Westchester  County, and Long Island in New York and Fairfield
and New Haven Counties in Connecticut.

         The Company has two operating subsidiaries:

         * Health Acquisition Corp., formerly Allen Health Care Services,  Inc.,
a New York  corporation,  of which Allen  Health Care  Services  ("Allen  Health
Care") is the sole operating division.

         *  New  England  Home  Care,  Inc.,  (  "New  England")  a  Connecticut
corporation which conducts business in Connecticut.

         In May  1998,  the  operations  of Nurse  Care,  Inc.  ("Nurse  Care"),
previously a wholly-owned  subsidiary of the Company, which provided home health
aide services in Connecticut were combined with the operations of New England.

         In  January  1996,  the  outpatient  medical  service  business  of the
Company,  formerly known as Brevard Medical Center, Inc. and First Health, Inc.,
was reorganized as SunStar Healthcare,  Inc. ("SunStar") a newly-formed,  wholly
owned subsidiary of the Company. On May 21, 1996, the initial public offering of
common stock by SunStar was consummated,  thus reducing the Company's  ownership
percentage of SunStar to approximately 37.6%. As a result,  SunStar is no longer
consolidated  with the Company for accounting  purposes and the Company accounts
for its investment in SunStar using the equity method of accounting.  During the
fiscal year ended July 31, 1998, the Company's  ownership  percentage of SunStar
was  reduced to 30.5% as a result of SunStar  issuing  additional  shares of its
common stock pursuant to a private placement.

         On September 25, 1998, the Company  signed a definitive  stock purchase
agreement with Accredited Health Services,  Inc.,  ("Accredited"),  a New Jersey
licensed  home health care agency  that  provides  home health aide  services in
Bergen, Hudson,  Passaic,  Essex, Morris, Union, Somerset and Middlesex Counties
in New Jersey.  Revenues of Accredited  approximated  $5,300,000  for the fiscal
year  ended  March 31,  1998.  The  closing  of the  transaction  is  subject to
regulatory and other approvals and conditions. The acquisition is expected to be
completed  by October 31,  1998.  The  purchase  price for 100% of  Accredited's
outstanding stock is approximately $1,800,000 in cash,

                                       -2-

<PAGE>

subject  to  post-closing  adjustment.  Upon  closing,  Accredited  will  be  an
operating subsidiary of the Company.

Health Acquisition Corp.
d/b/a Allen Health Care Services

         Allen Health Care is a provider of personal home health care  services.
Services are provided by registered  nurses,  personal  care aides,  home health
aides and  homemakers.  The Company is licensed by the Public Health  Council of
the State of New York  Department  of Health.  Allen Health Care  maintains  its
principal  administrative  office in Jamaica, New York and has branch offices in
Farmingdale  and Mount  Vernon,  New York.  Case  coordinating  of  patients  is
performed at these three offices. In addition, the Company has satellite offices
in  Manhattan,  Islandia and  Hempstead,  New York.  The  satellite  offices are
primarily used for the recruitment  and training of home health aides.  Services
are  provided  in the  following  counties  in the  State of New  York:  Nassau,
Suffolk, Westchester, Queens, Kings, New York and the Bronx.

         All home health care personnel are licensed or agency certified under a
New York State approved program and can be engaged on a full-time,  part-time or
live-in basis.  Effective July 1, 1996, Allen Health Care instituted residential
criminal  background  investigations for all new personnel.  In addition,  urine
drug testing is part of the  pre-employment  screening  process and is performed
annually and randomly thereafter.  In May 1996, Allen Health Care was resurveyed
by the Joint Commission of Accreditation of Health Care Organizations ("JCAHO"),
an accrediting body for health care providers. JCAHO accreditation is associated
with  providing  quality  services.  This  status  is  required  by  many of the
certified home health care agencies that Allen Health Care  currently  services.
The  resurvey  resulted in Allen Health Care  extending  its  accredited  status
through the year 1999.

         Reimbursement   for  Allen  Health  Care's  services  is  primarily  by
certified home health care agencies, and long-term health care provider programs
that  subcontract  their  patients to Allen Health Care, as well as from private
payors and the Nassau,  Suffolk and  Westchester  Counties  Department of Social
Services  Medicaid  Programs,  for which Allen  Health  Care is a  participating
provider.

         Allen  Health Care  provides  home health care  services to its clients
twenty-four hours per day, seven days per week. Although the Allen Health Care's
offices  are  open  during  normal  business  hours,   personnel  are  available
twenty-four hours per day to respond to emergencies and to provide other service
requests.  The  registered  nurses of Allen Health Care, in accordance  with New
York State  Department of Health  regulations and contract  requirements,  visit
patients  regularly and review the records of service which are completed by the
home health aide and personnel care aides daily. These records are maintained by
Allen  Health  Care.  In  addition,  the  home  care  coordinator  ensures  that
appropriate  coverage is  maintained  for all  patients  and acts as the liaison
among family members, aides and professional staff.


                                       -3-

<PAGE>
         The stock of Allen  Health Care was  acquired by the Company in October
1986. Subsequent to the acquisition, the agency has grown its home care business
by  securing  additional  contracts  with  certified  home health  agencies  and
expanding its services and geographical presence through acquisitions.

         In March 1997,  Allen Health Care completed the  acquisition of certain
assets of C.J. Home Care, Inc., d/b/a Garden City Home Care, a New York licensed
home  health  care agency  that  provides  home  health aide  services in Nassau
County,  New York.  Annual  revenues  for  Garden  City  Home Care  approximated
$2,000,000 in 1996. In May 1997,  Allen Health Care completed the acquisition of
certain assets of Home Health Aides, Inc. and H.H.A.  Aides,  Inc., two New York
licensed  home health care  agencies  that provide home health aide  services in
both Nassau and Suffolk  County,  New York. The two companies  collectively  had
revenues of  approximately  $3,400,000 in 1996. The latter  acquisition gave the
Company an entree into the Shared Aide Program in Nassau County. The Shared Aide
Program is a relatively new program for Medicaid patients that brings together a
group of home health aides to care for  patients in one  geographic  area,  thus
increasing operating efficiencies and reducing costs.

         In August 1998,  Allen Health Care completed the acquisition of certain
assets of Bryan Employment Agency,  Inc., d/b/a Bryan Home Care Services,  a New
York State  licensed  home health care agency that  provides  home health  aides
services  in  Westchester  County,  New  York.  The  acquisition   expanded  the
geographic  presence of the Company  and enabled  Allen  Health Care to become a
participating  provider in the Westchester  County Department of Social Services
Medicaid Program. Annual revenues for Bryan Home Care approximated $5,700,000 in
calendar 1997.

         To a larger extent, Allen Health Care's continued growth depends on its
ability to recruit and maintain qualified  personnel.  The Company believes that
it offers competitive salaries and fringe benefits and has been able to keep its
home health aides working on a steady basis.

New England Home Care, Inc.

         On August 4, 1995, the Company  consummated  the acquisition of 100% of
the  capital  stock of  Nurse  Care,  the  parent  company  of New  England  for
$3,150,000  in cash.  During the fiscal  year  ended July 31,  1996,  Nurse Care
transferred all of the outstanding shares of New England to National Home Health
Care  Corp.,  whereby  New  England  as well as Nurse  Care,  became  a  direct,
wholly-owned subsidiary of the Company.

         New  England is a Medicare  certified  and  licensed  home  health care
company  in   Connecticut.   In  December  1995,  New  England   received  JCAHO
accreditation  through the year 1998. New England provides  services  throughout
Fairfield and New Haven  Counties,  in  Connecticut.  Services  include  skilled
nursing, physical therapy,  occupational therapy, speech therapy, medical social
services  and home  health  aide  services.  In  addition,  New  England  offers
specialty services consisting of mental health and wellness, perinatal/high risk
pregnancy,  enterostomal  therapy/wound care management and nutritional support.
New England provides  full-service home health care twenty- 

                                      -4-
<PAGE>

four hours per day, seven days per week. Weekends,  holidays and after-hours are
supported by an on-call system for each office location with medical supervision
by a registered  nurse at all times. All home health care personnel are licensed
or certified under a Connecticut  State approved program and can be engaged on a
full-time,  part-time or live-in  basis.  Since 1995,  New England has performed
criminal background investigations on all new personnel.

         New England maintains its principal  administrative  office in Milford,
Connecticut   and  has  branch   offices  in  Norwalk,   Hamden  and  Waterbury,
Connecticut.  Case  coordinating of patients is performed at these four offices.
In  addition,  New  England  has  satellite  offices  in  Danbury  and  Seymour,
Connecticut.  Reimbursement for New England's  services is primarily provided by
the Federal Medicare Program, the State of Connecticut Medicaid Program, private
payors, hospices, other certified home health agencies and long-term health care
providers that subcontract their patients to New England. 

Insurance

         The  Company and its  subsidiaries  maintain  professional  malpractice
liability  coverage on  professionals  employed in the  rendering of health care
services  providing coverage in an amount of up to $1,000,000 per occurrence and
up to $6,000,000 in the aggregate and coverage for the customary  risks inherent
in the operation of business in general.  Recent market  conditions with respect
to  liability   insurances  have  caused  wide  fluctuations  in  the  cost  and
availability of coverage.  The Company carries directors and officers  liability
with a limit of $5,000,000.  While the Company  believes its insurance  policies
are adequate in the amount and coverage for its current operations, there can be
no assurance that coverage will continue to be available in adequate  amounts or
at a reasonable cost.

Employees and Labor Relations

         As of October 15, 1998,  the Company had  approximately  1,800 full and
part-time  employees of whom 15 were employed in various  management  capacities
and four were employed in marketing capacities.  None of the Company's employees
is represented by a labor  organization.  The Company  believes its relationship
with its employees is satisfactory.  The Company has standardized procedures for
recruiting,   interviewing  and  reference  checking   prospective  health  care
personnel. All nurses and home health aides must be licensed or certified by the
appropriate authorities.

Competition

         The home  health  care  field is highly  competitive.  The  Company  is
competing  with numerous  other  licensed as well as certified  home health care
agencies in each of the markets it serves.  In  addition,  the Company  competes
with  companies  that,  in  addition to  providing  home health aide and skilled
nursing services,  also, unlike the Company, provide pharmaceutical products and
other home health care services that generate additional referrals.  Competition
also involves the quality of services provided and the pricing for its services.
As a result of changes in Medicare  reimbursement and the competitive  pressures
of managed care, the home health care industry is expected to

                                       -5-

<PAGE>

experience  consolidation  over the next few years.  The Company  believes  that
smaller,  less  financially  secure home health  agencies will find it ever more
difficult  to compete  for market  share and comply with  regulatory  compliance
standards.

         The Company's ability to attract a staff of highly trained personnel is
a material element of its business.  There currently is intense  competition for
qualified  personnel  and there can be no  assurance  that the  Company  will be
successful in maintaining or in securing  additional  qualified  personnel.  The
Company recruits personnel  principally through referral from existing personnel
and through newspaper advertisements.

Customers

         One or more  customers  have  each  accounted  for more than 10% of the
Company's revenues. For the fiscal years ended July 31, 1998, 1997 and 1996, VNS
Home Care, a non-profit Medicare home health care agency, accounted for 22%, 22%
and 24%,  respectively,  of the Company's net patient revenues; the State of New
York Department of Social  Services  personal care aide program for the counties
of Suffolk  and  Nassau  accounted  for 18%,  10% and 7%,  respectively,  of the
Company's net patient  revenues;  and the Federal Medicare program accounted for
approximately  13%,  22% and 21%,  respectively,  of the  Company's  net patient
revenues.  The loss of any of the  foregoing  customers  would  have a  material
adverse effect on the Company.

Government Regulations and Licensing

         The health care industry is highly regulated. The Company's business is
subject to substantial and frequently changing regulations by Federal, state and
local  authorities.  The Company  must comply  with state  licensing  along with
Federal and state  eligibility  standards  for  certification  as a Medicare and
Medicaid provider.

         The  ability of the Company to operate  profitably  will depend in part
upon the Company  obtaining and  maintaining  all  necessary  licenses and other
approvals in compliance with applicable health care regulations.

Medicare

         Title  XVIII  of  the  Social  Security  Act  authorizes  Part A of the
Medicare  program,  the health insurance  program that pays for home health care
services for covered persons  (typically,  those aged 65 and older and long-term
disabled).  Home health care providers may  participate in the Medicare  program
subject to certain conditions of participation and upon acceptance of a provider
agreement by the Secretary of the Department of Health and Human Services.  Only
enumerated  services,  upon  satisfaction  of  certain  coverage  criteria,  are
eligible  for  reimbursement  as a Medicare  provider.  The Company is currently
Medicare certified in Connecticut. Approximately 13%, 22% and 21% of net patient
revenue for the fiscal  years  ended July 31, 1998 , 1997 and 1996 were  derived
under the Medicare program.

                                       -6-

<PAGE>

         The Balanced  Budget Act of 1997,  as amended  (the "Act"),  was signed
into  law  in  August  of  1997.  The  Act  made  significant   changes  in  the
reimbursement system for Medicare home health services.  The primary change that
affects the Company is a restructuring  of the  reimbursement  system related to
Medicare certified home care agencies.

         Under the Act,  Medicare home care payment changes are scheduled in two
phases.  The first phase, a temporary or interim  payment system  ("IPS"),  took
effect for cost reports  beginning on or after October 1, 1997.  Under IPS, home
health care  providers  will be reimbursed  the lower of (i) their actual costs,
(ii) cost  limits  based on 105% of median  costs of  freestanding  home  health
agencies,  or (iii) an  agency-specific  per patient  cost limit based on 98% of
1994  costs  adjusted  for  inflation.  Under  this new  system,  most  Medicare
providers  will now be  reimbursed  under an agency-  specific  per patient cost
limit.  Prior to the  implementation  of IPS, Medicare  reimbursed  providers on
reasonable  cost basis subject to  program-imposed  cost per visit  limitations.
Under the second  phase of the Act, IPS is to be replaced in October 2000 with a
prospective  payment system in which Medicare will pay a fixed fee per diagnosis
to be  established  by the  Secretary  of the  Department  of  Health  and Human
Services.

         In passing these new rules,  Congress  expressed the intent of reducing
Medicare home care expenditures by approximately  $16.2 billion over five years.
These changes were enacted to slow the explosive  growth of Medicare home health
care  costs  and curb  fraud  and  abuse in the  industry.  As a result of these
changes,  home health  care  providers  will be forced to reduce  their costs of
providing services and it is expected that utilization of home care services per
beneficiary will decline.  Under certain conditions,  Medicare beneficiaries who
had  previously  been entitled to services will no longer qualify under Medicare
reimbursement guidelines.

         As a result of the  changes to  Medicare  reimbursement  imposed by the
Act,  the Company  expects a decline in  revenues  from its  Medicare  certified
nursing agency for the cost reporting period beginning July 1, 1998. The Company
has  determined  that IPS will reduce  current  reimbursement  for the  Medicare
services it provides.  In addition,  the  Company's  operations  in New York are
dependent upon  referrals,  primarily from Medicare  certified  agencies,  whose
future  reimbursement may be adversely  affected.  Accordingly,  there can be no
assurance  that the  Company's  future  referrals  will not  result  in  reduced
reimbursement rates or reduced volume in business.

         Under  the  second  phase  of the  Act,  IPS is to be  replaced  with a
prospective  payment  system for home health care  providers by October 1, 2000.
However,  rules and  regulations  have not yet been developed by the Health Care
Financing  Administration  and there can be no assurance that such deadline will
be met. In the event that a prospective  payment  system is not  implemented  by
that date,  the Act  requires  cost limits then in existence to be lowered by an
additional  15%.  Such  lower  cost  limits  may have an  adverse  effect on the
Company, as well as on the entire industry.  As the Company is unable to predict
how the prospective  payment system will be ultimately designed and implemented,
it is unable to predict its impact on the Company.


                                       -7-

<PAGE>



         The Act also initially required that Medicare providers purchase surety
bonds in an amount equal to 15% of annual  Medicare  reimbursement.  The Company
was required to have a surety bond in place no later than February 7, 1998.  The
Company  successfully  complied with this  requirement,  at an immaterial  cost.
Subsequent to the initial  deadline,  Medicare  postponed this requirement until
February 1999.

Medicare Fraud and Abuse

         Provisions  of the Social  Security  Act under  Medicare  and  Medicaid
generally  prohibit  soliciting,  receiving,  offering  or paying,  directly  or
indirectly,  any form of  remuneration in return for the referral of Medicare or
state health care program patients or patient care  opportunities,  or in return
for the purchase, lease or order of any facility item or service that is covered
by Medicare or state health care program. The federal government has promulgated
regulations   that  provide   exceptions,   or  "safe  harbors",   for  business
transactions  that will be deemed not to  violate  the anti-  kickback  statute.
Violations  of the  statute  may  result in civil  and  criminal  penalties  and
exclusion from participation in the Medicare and Medicaid programs.  The Company
believes that its current  operations are not in violation of the  anti-kickback
statute.

Medicaid

         Approximately  27%,  17% and 18% of net patient  revenue for the fiscal
years ended July 31, 1998, 1997 and 1996, respectively, were derived under state
sponsored  Medicaid  programs.  Reimbursement  for  home  health  care  services
rendered to eligible  Medicaid  recipients  is made in an amount  determined  in
accordance with procedures and standards  established by state law under federal
guidelines. States differ as to reimbursement policies and rates. The Company is
a  licensed  Medicaid  provider  in  Connecticut  and  in  Nassau,  Suffolk  and
Westchester Counties in New York. Medicaid reimbursement rates may be reduced in
response to state economic and budgetary constraints,  as well as in response to
changes in the Medicare program.



                                       -8-

<PAGE>



Item 2.    Properties.

         The Company,  directly or through certain subsidiaries,  leases various
office  facilities under lease agreements with various  expiration dates through
the year  2004.  The  following  sets  forth the  location,  approximate  square
footage, use of each office and expiration date of each lease:


                      Approximate                             Expiration Date
      Location        Square Feet        Use                     of Lease
      --------        -----------        ---                  ---------------

Scarsdale, NY           2,679    Corporate headquarters      October 31, 2003
Queens, NY              7,500    Administrative office       January 31, 1999
Farmingdale, NY         3,519    Branch office               May 31, 1999
Hempstead, NY           3,800    Satellite office            September 30, 2004
Islandia, NY            2,100    Satellite office            June 30, 2001
Manhattan, NY           1,265    Satellite office            April 30, 1999
Mount Vernon, NY        1,900    Branch Office               November 30, 2000
Milford, CT            10,350    Administrative office       May 31, 1999
Norwalk, CT             2,772    Branch office               May 31, 1999
Hamden, CT              2,605    Branch office               July 31, 1999
Waterbury, CT           2,000    Branch office               July 31, 2000
Seymour, CT               575    Satellite office            Month to Month
Danbury, CT             1,200    Satellite office            Month to Month

         The Company  believes that its office  facilities  are adequate for the
conduct  of  its  existing  operations.  The  Company  regularly  evaluates  the
suitability  and the  overall  adequacy  of its  various  offices.  The  Company
believes that it will be able to renew or find adequate  replacement offices for
all leases which will expire in the current fiscal year.

Item 3.    Legal Proceedings.

         In the ordinary course of business,  the Company is subject,  from time
to time, to claims and legal actions.  No material actions are currently pending
against the Company.

Item 4.    Submission of Matters to a Vote of Security-Holders.

         No matters  were  submitted  to a vote of  stockholders  of the Company
during the fourth quarter of the fiscal year ended July 31, 1998.



                                       -9-

<PAGE>

                                     PART II


Item 5.  Market for Company's Common Stock
           and Related Stockholder Matters.

         (A)               Market Information

         The  Company's  Common  Stock is quoted on the NASDAQ  National  Market
under the symbol NHHC.  The following  table presents the quarterly high and low
bid  quotations  in the  over-the-counter  market,  as reported by the  National
Association  of Securities  Dealers for the two fiscal years ended July 31, 1997
and July 31, 1998. These quotations  reflect the  inter-dealer  prices,  without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
                                  

                                                      Market Prices
                                         ---------------------------------------
                                                High                 Low
Year ended July 31, 1997
------------------------

1st Quarter............................         $7.38                 $5.88
2nd Quarter............................          6.88                  5.38
3rd Quarter............................          6.25                  5.00
4th Quarter............................          6.38                  5.00


Year ended July 31, 1998
------------------------

1st Quarter............................         $5.75                 $4.50
2nd Quarter............................          5.50                  4.63
3rd Quarter............................          4.88                  3.88
4th Quarter............................          5.00                  4.03

         (B)               Holders

         There were  approximately  147 holders of record of Common  Stock as of
October  26, 1998  excluding  shares held by  depository  companies  for certain
beneficial owners.

         (C)               Dividends

         The Company has not  declared or paid any cash  dividends on its shares
of Common Stock during the last three fiscal years. It anticipates  that for the
foreseeable  future all earnings will be retained for use in its business,  and,
accordingly,  it does not intend to pay cash dividends. On October 21, 1996, the
Board of Directors of the Company  declared a 6% stock dividend payable December
4, 1996 to  stockholders of record on November 8, 1996. On October 10, 1997, the
Board of Directors of the Company  declared a 3% stock dividend payable December
8, 1997 to  stockholders  of record on  November  6, 1997.  The  Company did not
declare any cash or stock dividends during the fiscal year ended July 31, 1998.

                                      -10-

<PAGE>


Item 6.  Selected Financial Data.

         The following  table,  which presents  selected  financial data for the
Company  for each of the last  five  fiscal  years,  has been  derived  from the
Consolidated  Financial  Statements  of the Company,  which have been audited by
Richard A. Eisner & Company, LLP, independent auditors. The data set forth below
should be read in conjunction with the Consolidated Financial Statements in Item
8 of this Report.  The results below include the  operations of SunStar  through
April 30, 1996.  Subsequent  thereto,  the operations of SunStar are recorded on
the equity method and are reflected as loss from equity investee.
<TABLE>
<CAPTION>

                                                              Fiscal Years Ended July 31,
                                     ---------------------------------------------------------------------------------
                                           1998             1997             1996           1995           1994
                                     ---------------------------------------------------------------------------------
STATEMENT OF OPERATIONS                                                                                                
DATA:                                                                                                                  

<S>                                     <C>               <C>             <C>           <C>              <C>        
Revenues.............................     $34,313,000       $35,070,000     $38,830,000   $24,556,000      $20,116,000
Operating expenses...................      31,394,000        31,770,000      35,564,000    22,414,000       17,982,000
Income from operations...............       2,919,000         3,300,000       3,266,000     2,142,000        2,134,000
Other income (loss):
         Gain resulting from
            subsidiary's stock offering       331,000               ---       1,548,000           ---              ---
         Interest income.............         547,000           446,000         412,000       410,000          161,000
         (Loss) from equity investee.      (1,630,000)         (612,000)        (10,000)          ---              ---
Income from continuing operations
before taxes.........................       2,167,000         3,134,000       5,216,000     2,552,000        2,295,000
Provision for income taxes...........         964,000         1,278,000       1,859,000     1,126,000        1,077,000
Income from continuing operations....       1,203,000         1,856,000       3,357,000     1,426,000        1,218,000
Discontinued operations..............             ---               ---             ---           ---       (3,472,000)
Net income (loss)....................       1,203,000         1,856,000       3,357,000     1,426,000       (2,254,000)

Diluted net income (loss) per share 
   of common stock:
         Continuing operations.......           $0.23             $0.35           $0.64         $0.27           $ 0.24
         Discontinued operations                  ---               ---             ---           ---           $(0.67)
         Net income (loss)..                    $0.23             $0.35           $0.64         $0.27           $(0.43)

BALANCE SHEET DATA:  
                                                                                                         
Total assets.........................      25,503,000        25,224,000      24,421,000    18,865,000       17,926,000
Working capital......................      19,134,000        16,853,000      16,288,000    15,292,000       13,484,000
Retained earnings....................       7,045,000         5,842,000       4,789,000     3,307,000        1,881,000
Stockholders' equity.................      24,281,000        23,360,000      21,504,000    17,914,000       16,688,000
</TABLE>

                                      -11-

<PAGE>

Item 7.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations.

         The following  discussion and analysis  provides  information which the
Company's  management believes is relevant to an assessment and understanding of
the Company's  results of operations and financial  condition.  This  discussion
should be read in conjunction  with the  consolidated  financial  statements and
notes appearing elsewhere herein.

         This discussion contains forward-looking statements that are subject to
a number of known and  unknown  risks that,  in  addition  to general  economic,
competitive  and  other  business   conditions,   could  cause  actual  results,
performance  and  achievements  to differ  materially  from those  described  or
implied in the forward-looking statements.

         The  Company is  subject to  significant  external  factors  that could
significantly  impact its business,  including  changes in Medicare and Medicaid
reimbursement,  government  fraud and abuse  initiatives  and other such factors
that are beyond the control of the  Company.  These  factors,  as well as future
changes in  reimbursement  could cause future results to differ  materially from
historical results.

         The Balanced  Budget Act of 1997,  as amended  (the "Act"),  was signed
into law on August 5, 1997.  Under the Act,  for cost  reports  beginning  on or
after  October  1,  1997,  Medicare-reimbursed  home  health  agencies  will  be
reimbursed  under an interim  payment system ("IPS") for a two-year period prior
to the  implementation  of a  prospective  system.  Under IPS,  home health care
providers  will be  reimbursed  the lower of (i) their actual  costs,  (ii) cost
limits based on 105% of median costs of freestanding  home health  agencies,  or
(iii) an  agency-specific  per-patient  cost  limit,  based on 98% of 1994 costs
adjusted for inflation.  Prior to the implementation of IPS, Medicare reimbursed
providers on a reasonable cost basis subject to  program-imposed  cost per visit
limitations. The Act calls for payments to Medicare providers for cost reporting
periods  beginning on or after October 1, 2000 to be made in  accordance  with a
prospective  payment system to be established by the Secretary of the Department
of Health and Human  Services.  Without a prospective  payment system by October
2000, a 15% further cut in Medicare home health payments will take effect.

         The new IPS cost limits will apply to the Company's  Connecticut  based
medicare  certified  nursing agency for the cost reporting period beginning July
1, 1998.  The Company has  determined  that these new limits will reduce current
reimbursement for the Medicare services it provides.  Accordingly,  in May 1998,
the Company  combined  its  operations  in  Connecticut  by merging its Medicare
certified subsidiary with its licensed agency subsidiary to increase operational
efficiencies.  In  addition,  the Company will closely  monitor  utilization  of
Medicare services in an effort not to exceed per patient cost limits.

         The  implementation  of IPS is  expected  to  result in a  decrease  in
revenues from the Company's Medicare certified agency, beginning in fiscal 1999.
In addition,  the Company's operations in New York are dependent upon referrals,
primarily from Medicare certified agencies, whose future

                                      -12-

<PAGE>

reimbursement may be adversely affected.  Accordingly, there can be no assurance
that the Company's  future  referrals  will not result in reduced  reimbursement
rates or reduced volume of business.

         On March 25, 1997,  Health  Acquisition  Corp.("HAC"),  a  wholly-owned
subsidiary of the Company,  acquired  certain assets of C.J. Home Care, Inc. and
on May 29, 1997,  HAC acquired  certain  assets of Home Health  Aides,  Inc. and
H.H.A.  Aides,  Inc. These  acquisitions  were from New York State licensed home
health care  companies  that provided home health care services in both Nassau &
Suffolk  Counties,  New York. The acquisitions have been accounted for utilizing
purchase accounting principles.

         On May 21, 1996, the initial public offering of common stock by SunStar
was  consummated.  SunStar,  then a  wholly-owned  subsidiary of the Company had
comprised  the Company's  Florida  outpatient  medical  center  operations.  The
Company currently owns 890,000 shares, or approximately  30.5%, of SunStar.  The
operations  of SunStar  prior to the  offering are  reflected  in the  Company's
financial  statements  as  continuing  operations.  In  the  preparation  of its
financial  information,  the Company has relied upon the financial statements of
SunStar.

Results of Operations 
<TABLE>
<CAPTION>

                                                             Fiscal year ended July 31,

                                                      1998           1997           1996
                                                      ----           ----           ----

<S>                                               <C>            <C>            <C>   
Net patient revenue                                  100.0%         100.0%         100.0%
                                                     ------         -------        ------
Cost of revenue                                       64.5           65.3           63.9
General and administrative                            25.9           24.6           26.9
Amortization of intangibles                            1.1            0.7            0.8
                                                    ------        -------        -------
Total operating expenses                              91.5           90.6           91.6
                                                    ------         ------         ------
Income from operations                                 8.5            9.4            8.4
Gain resulting from subsidiary's stock offering        1.0           ---             4.0
Interest income                                        1.6            1.2            1.0
(Loss) from equity investee                           (4.8)          (1.7)           ---
                                                  ---------        -------       -------
Income before income taxes                             6.3            8.9           13.4
Provision for income taxes                             2.8            3.6            4.8
                                                  --------         ------         ------
Net income                                             3.5%           5.3%           8.6%
                                                  ---------        -------        -------
</TABLE>


                                      -13-

<PAGE>



          Year Ended July 31, 1998 Compared to Year Ended July 31, 1997

        For the fiscal year ended July 31,  1998  ("fiscal  1998"),  net patient
revenues  decreased  ($757,000) or (2%) to $34,313,000  from $35,070,000 for the
fiscal year ended July 31, 1997 ("fiscal 1997"). During fiscal 1998, net patient
revenue from HAC increased  $2,037,000,  or 10% to $22,599,000 from $20,562,000.
This  increase  is  attributable  to the  acquisitions  made  by HAC  that  were
completed in March and May of 1997. During fiscal 1998, net patient revenue from
New England Home Care, Inc. ("New England") and Nurse Care, Inc. ("Nurse Care"),
respectively,  the Medicare certified and licensed home health care subsidiaries
in  Connecticut,   decreased   ($2,794,000),   or  (19%)  to  $11,714,000   from
$14,508,000.  This  decrease is  attributable  to a decline of  ($3,256,000)  in
Medicare revenue, offset by an increase in non-Medicare revenue of $462,000. The
decline in  Medicare  revenue  is the  result of a decline of (45%) in  Medicare
visits from the corresponding  period of 1997.  Medicare visits decreased as the
Company began early preparation for the change in Medicare  reimbursement to IPS
cost limits.

        Gross profit margin remained at 35% in both fiscal 1998 and 1997.

        General  and  administrative  expenses  increased  $266,000,  or  3%  to
$8,886,000  in fiscal 1998 from  $8,620,000  in fiscal 1997.  As a percentage of
revenue,  general and  administrative  expenses  increased to 26% in fiscal 1998
from 25% in fiscal 1997.  This  increase is  attributable  to the decline in net
patient  revenues that was not offset by a corresponding  decline in general and
administrative expenses.

        Amortization of intangibles  increased  $128,000,  or 52% to $373,000 in
fiscal 1998 from $245,000 in fiscal 1997.  This increase is  attributable to the
acquisitions made by HAC in fiscal 1997.

        As  a  result  of  the  foregoing,   income  from  operations  decreased
($381,000),  or (12%) to  $2,919,000  in fiscal 1998 from  $3,300,000  in fiscal
1997.

        Interest income  increased  $101,000,  or 23% to $547,000 in fiscal 1998
from $446,000 in fiscal 1997.  This increase is  attributable to the increase in
cash and cash equivalents over the most recent fiscal year.

        As a result  of a private  placement  of common  stock by  SunStar,  the
Company  adjusted the carrying value of its investment in SunStar to reflect the
Company's  percentage  ownership  share  (30.5%) in the  increase  in  SunStar's
equity, which resulted in a gain of $331,000. In addition,  the Company recorded
a loss from equity investee of ($1,630,000) in fiscal 1998 as compared to a loss
of ($612,000) in fiscal 1997,  representing  the Company's share of the net loss
recorded by SunStar for the same periods.


                                      -14-

<PAGE>

        The  Company's  effective  tax rate  increased  to 44% in fiscal 1998 as
compared to 41% in fiscal 1997. This increase is attributable to a lesser income
tax benefit on the loss from  equity  investee.  Excluding  the loss from equity
investee and gain resulting from subsidiary's stock offering,  the effective tax
rate remained at 38% in both fiscal 1998 and 1997.

        Net income decreased ($653,000) to $1,203,000, or $.23 per diluted share
in fiscal 1998 from  $1,856,000,  or $.35 per diluted share in fiscal 1997.  The
decrease  is  primarily  attributable  to the  increased  loss  from the  equity
investment in SunStar.

          Year Ended July 31, 1997 Compared to Year Ended July 31, 1996

         For the fiscal year ended July 31, 1997, net patient revenues decreased
($3,760,000), or (10%) to $35,070,000 from $38,830,000 for the fiscal year ended
July 31, 1996 ("fiscal  1996").  This decrease is primarily  attributable to the
absence of revenues from outpatient  revenues from outpatient  medical  services
during  fiscal 1997 as compared with the presence of such revenues of $3,693,000
during 1996.  Revenues from home health care services  decreased  ($67,000),  or
(.2%) from $35,173,000 in fiscal 1996.  Revenues from HAC decreased  ($100,000),
or (.5%) to  $20,562,000 in fiscal 1997 from  $20,662,000  in fiscal 1996,  This
decrease is the result of increased  competition  and price  pressures  from the
certified  home  health  agencies  with which it  contracts.  Revenues  from New
England and Nurse Care increased  $33,000,  or .2% to $14,508,000 in fiscal 1997
from $14,475,000 in fiscal 1996.

         Gross profit  margin  percentage  in fiscal 1997 was 35% as compared to
36% for fiscal 1996. Excluding  outpatient medical center operations,  the gross
profit margin was 35% in fiscal 1996.

         General and  administrative  expenses decreased from 27% of revenues in
fiscal  1996 to 25% of  revenues  in fiscal  1997.  The  decrease  is  primarily
attributable  to improved  efficiencies  implemented  in the  operations  of New
England and Nurse Care.

         Amortization  of intangibles  decreased from $294,000 in fiscal 1996 to
$245,000  in fiscal  1997 as a result of certain  intangible  assets  from prior
acquisitions being fully amortized.

         As a result of the foregoing, income from operations increased $34,000,
or 1% to $3,300,000 in fiscal 1997 from $3,266,000 in fiscal 1996.

         Interest income  increased to $446,000 for fiscal 1997 from $412,000 in
fiscal  1996.  This  increase of $34,000,  or 8% is the result of the  Company's
increased cash flow over fiscal 1996.

         The Company  recorded a loss from  equity  investee  of  ($612,000)  in
fiscal 1997 as compared to a loss of ($10,000) in fiscal 1996,  representing the
Company's  share of the net loss  reported by SunStar for the same  periods.  In
addition, in fiscal 1996, the Company recorded a net gain on the SunStar initial
public offering in the amount of $1,024,000.


                                      -15-

<PAGE>

         The  Company's  effective  tax rate  increased to 41% in fiscal 1997 as
compared to 36% in fiscal 1996.  This  increase is  attributable  to the Company
utilizing available state net operating loss deductions in fiscal 1996.

         Net income decreased ($1,501,000),  or (45%) to $1,856,000, or $.35 per
diluted  share in fiscal  1997 as compared  to  $3,357,000,  or $.64 per diluted
share in  fiscal  1996.  The  decrease  is  primarily  attributable  to the gain
resulting from subsidiary's stock offering in fiscal 1996.

Financial Condition, Liquidity and Capital Resources

         At July 31, 1998,  the Company had working  capital of  $19,134,000  as
compared  to working  capital of  $16,853,000  at July 31,  1997.  Cash and cash
equivalents at July 31, 1998 were  $10,992,000 as compared to $9,324,000 at July
31, 1997.

         On August  10,  1998,  the  Company  acquired  certain  assets of Bryan
Employment  Agency,  Inc., a New York State licensed home health agency based in
Westchester  County,  New  York  for  approximately  $1,935,000  in cash  and on
September 25, 1998,  the Company signed a definitive  stock  purchase  agreement
with Accredited  Health  Services,  Inc., a New Jersey licensed home health care
agency based in Bergen County,  New Jersey.  The approximate  purchase price for
Accredited Health Services,  Inc. is $1,800,000 in cash, subject to post-closing
adjustment. The acquisition is expected to be completed by October 31, 1998.

         Net cash provided by operating activities was $2,016,000 in fiscal 1998
as compared with  $2,398,000 in fiscal 1997.  This  decrease of  ($382,000),  or
(16%) is  primarily  attributable  to an  increase  in  accounts  receivable  of
$448,000,  an  increase in prepaid  expenses  and other  assets of  $75,000,  an
increase  in income  taxes  receivable  of  $370,000  and a decrease in accounts
payable and accrued  expenses of  $334,000,  offset by the decrease in estimated
third-party  payor  settlements of ($897,000) as compared to fiscal 1997.  After
giving effect to the above  mentioned  acquisitions  subsequent to year end, the
Company expects to continue to generate  sufficient cash flow from operations to
meet its working capital requirements.

         Investing  activities in fiscal 1998 used cash of ($66,000) as compared
to cash  used of  ($2,003,000)  in  fiscal  1997.  The  cash  used in  investing
activities  consisted of the purchase of furniture and equipment in both periods
and the purchase of assets of businesses in fiscal 1997.

         The purchase of treasury shares of ($331,000) pursuant to the Company's
stock  repurchase plan offset by the proceeds from the exercise of stock options
of $49,000,  resulted in the cash used in financing  activities of ($282,000) in
fiscal 1998.  The  proceeds  from the  exercise of stock  options  offset by the
purchase of treasury shares provided no cash from financing activities in fiscal
1997.

         The nature of the Company's business requires weekly payments to health
care personnel at the time services are rendered. The Company typically receives
payment  for  these  services  on a basis  of 90 to 120  days  with  respect  to
contracted business and 30 to 45 days with respect to certain

                                      -16-

<PAGE>



governmental  payors,  such as Medicare and Medicaid  programs.  For both fiscal
years 1998 and 1997, accounts receivable turnover was 91 days.

         The Company has available a $2,000,000  secured line of credit with its
bank.  In addition,  a subsidiary  of the Company has a secured  advised line of
credit.  The maximum amount that can be borrowed under the secured  advised line
of  credit  may not  exceed  the  lesser  of  eligible  accounts  receivable  or
$2,000,000.   Both  credit  facilities  bear  interest  at  the  alternate  base
commercial  lending rate of the bank and expire  January 31,  1999.  At July 31,
1998, there was no outstanding balance under either line of credit.

         The  Company  intends  to meet both its  short and long term  liquidity
needs with its current cash balances,  cash flow and available  lines of credit.
The Company  believes that its current cash  balances and available  credit will
also allow it to continue to make  acquisitions in the home health care industry
without external financing.

         In  August  1998,  the  Board of  Directors  extended  for one year its
program to repurchase its Common Stock.  Purchases in the aggregate amount of up
to $1,000,000 in purchase price during the one-year extension would be made from
time to time in the open market and through privately- negotiated  transactions,
subject to general  market and other  conditions.  The buyback  program  will be
financed out of existing cash or cash equivalents.

         Other than as set forth herein, the Company has no material commitments
for capital expenditures as of July 31, 1998.

         In the opinion of management,  there will be no material  impact on the
financial  statements  of  the  Company  from  any  recently  issued  accounting
standards.

Inflation and Seasonality

         The rate of  inflation  had no material  effect on  operations  for the
fiscal year ended July 31, 1998. The effects of inflation on personnel  costs in
the future could have an adverse effect on operations, as the Company may not be
able to increase its charges for services  rendered.  The Company's  business is
not seasonal.

Year 2000 Compliance

         The Year 2000  issue is the  result of  computer  programs  which  were
written using two digits rather than four to define the applicable year. Certain
purchased  systems  used by the  Company,  and for  which the  Company  does not
control the  programming  code,  use two digits for the year. The current system
used by HAC is  relatively  old and has been slated for  replacement  with a new
system that better meets the information  needs as it expands and deals with the
current operating environment. The Company anticipates that this conversion will
be completed to provide compliance with the requirements to handle the year 2000
issue with no significant operational concerns. The

                                      -17-

<PAGE>



current system utilized by New England is a relatively new operating system. The
Company  has  been  advised  by the  system  vendor  that all  required  changes
necessary  to be  compliant  with the year 2000  issue  have been  substantially
completed and will be implemented prior to the year 2000.  Management  currently
believes  that  the  financial  resources  necessary  to  accomplish  year  2000
compliance will not be material to the Company's financial condition,  liquidity
or results of  operations.  However,  there is no guarantee  that the  Company's
expected  results will be achieved.  In addition,  actual  results  could differ
materially from those expected results.

         The Company  depends on receipt of payment for services  from its payor
sources most of which utilize computer  software to process those payments.  The
Company's  primary  payors  include  Medicare and Medicaid  programs,  insurance
companies,  other  certified  home health  agencies  and  long-term  health care
provider  programs.  The Company is currently unable to predict what effect,  if
any, the year 2000 issue may have on the computer systems of those payors or, in
turn, on the Company.

Item 8.  Financial Statements and Supplementary Data

         The  financial  information  required  by this item is set forth in the
Consolidated Financial Statements on pages F-1 through F-25.

Item 9.  Changes In and Disagreements with Accountants
           on Accounting and Financial Disclosure.

         Not applicable.


                                      -18-

<PAGE>



                                    PART III

Item 10.         Directors and Executive Officers of the Registrant.

Item 11.         Executive Compensation.

Item 12.         Security Ownership of Certain Beneficial Owners and Management.

Item 13.         Certain Relationships and Related Transactions.

         The  information  required  by each of the items of Part III is omitted
from this Report.  Pursuant to the General  Instruction  G(3) to Form 10-K,  the
information  is included in the  Company's  Proxy  Statement for its 1998 Annual
Meeting of  Stockholders  to be held on  December 8, 1998,  and is  incorporated
herein by reference.  The Company intends to files such Proxy Statement with the
Securities and Exchange  Commission  not later than 120 days  subsequent to July
31, 1998.



                                      -19-

<PAGE>



                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

                  (a)  The  following  represents  a  listing  of all  financial
statements,  financial  statement  schedules and exhibits  filed as part of this
Report.

                  (1)  Financial  Statements  (see  index  to  the  consolidated
financial statements).

                  (2)   Financial   Statement   Schedules   (see  index  to  the
consolidated financial statements).


                                      -20-

<PAGE>


NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES



Index to Financial Statements and Schedules
Filed with the Annual Report of the Company on Form 10-K
<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----

<S>                                                                                                 <C>
Part II Item 8

     Independent Auditors' Report                                                                         F-2

     Consolidated Financial Statements
         Balance sheets as of July 31, 1998 and 1997                                                      F-3
         Statements of operations for the years ended July 31, 1998, 1997 and 1996                        F-4
         Statements of changes in stockholders' equity for the years ended July 31, 1998,
         1997 and 1996                                                                                    F-5
         Statements of cash flows for the years ended July 31, 1998, 1997 and 1996                        F-6
         Notes to financial statements                                                                    F-7

Part IV Item 14

     Independent Auditors' Report on Schedule                                                             F-24

     Supplementary Information
         Schedule II Valuation and Qualifying Accounts                                                    F-25
     Schedules Omitted

         Other  schedules  have been omitted as the conditions  requiring  their
         filing are not  present or the  information  required  therein has been
         included in the notes to consolidated financial statements.

</TABLE>

                                       F-1

<PAGE>





INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York


We have audited the  accompanying  consolidated  balance sheets of National Home
Health Care Corp. and subsidiaries as of July 31, 1998 and 1997, and the related
consolidated statements of operations,  changes in stockholders' equity and cash
flows for each of the years in the three-year  period ended July 31, 1998. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We did not audit the financial  statements  of SunStar  Healthcare,
Inc. at July 31, 1997 and for the year then ended,  a  corporation  in which the
Company had a 37.6%  interest at such date.  Those  statements  were  audited by
other  auditors whose report has been furnished to us; insofar as our opinion on
the 1997 consolidated  financial statements relates to data included for SunStar
Healthcare, Inc., it is based solely on their report.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our  opinion,  based  upon our  audits  and,  for 1997,  the  report of other
auditors,  the financial  statements  enumerated  above present  fairly,  in all
material respects,  the consolidated  financial position of National Home Health
Care Corp. and  subsidiaries as of July 31, 1998 and 1997, and the  consolidated
results of their  operations and their  consolidated  cash flows for each of the
years in the three-year period ended July 31, 1998, in conformity with generally
accepted accounting principles.



Richard A. Eisner & Company, LLP

New York, New York
October 7, 1998

                                       F-2

<PAGE>


NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES



Consolidated Balance Sheets
<TABLE>
<CAPTION>


                                                                                                     July 31,
                                                                                           --------------------------
                                                                                            1998                1997
                                                                                            ----                ----
<S>                                                                               <C>                    <C>
ASSETS                                                                                                                    
Current assets:                                                                                                           
   Cash (including cash equivalents of $7,576,000 and $8,344,000)                  $      10,992,000       $     9,324,000
   Investments - available for sale                                                          488,000               508,000
   Accounts receivable (less allowance for doubtful accounts of $295,000                                                  
      and $327,000)                                                                        8,269,000             8,176,000
   Income taxes receivable                                                                   123,000                      
   Prepaid expenses and other assets                                                         195,000               163,000
   Deferred taxes                                                                            289,000               230,000
                                                                                             -------               -------
                                                                                                                          
        Total current assets                                                              20,356,000            18,401,000
                                                                                                                          
Furniture, equipment and leasehold improvements, net                                         395,000               378,000
Excess of cost over fair value of net assets of businesses acquired                        3,179,000             3,350,000
Other intangible assets                                                                      745,000               947,000
Deposits and other assets                                                                    154,000               138,000
Investment in unconsolidated investee                                                        674,000             2,010,000
                                                                                             -------             ---------
                                                                                                                          
                                                                                   $      25,503,000       $    25,224,000
                                                                                          ==========            ==========
                                                                                                                          
LIABILITIES                                                                                                               
Current liabilities:                                                                                                      
   Accounts payable and accrued expenses                                           $       1,013,000       $     1,331,000
   Income taxes payable                                                                                             22,000
   Estimated third-party payor settlements                                                   209,000               195,000
                                                                                             -------               -------
                                                                                                                          
        Total current liabilities                                                          1,222,000             1,548,000
                                                                                                                          
Deferred tax liability - noncurrent                                                                                316,000
                                                                                           ---------               -------
                                                                                                                          
        Total liabilities                                                                  1,222,000             1,864,000
                                                                                           ---------             ---------
                                                                                                                          
Commitments, contingencies and other matters                                                                              
                                                                                                                          
STOCKHOLDERS' EQUITY                                                                                                      
Common stock, $.001 par value; authorized 20,000,000 shares,                                                              
   issued 6,228,746 and 6,208,646 shares                                                       6,000                 6,000
Additional paid-in capital                                                                18,525,000            18,476,000
Retained earnings                                                                          7,045,000             5,842,000
                                                                                           ---------             ---------
                                                                                                                          
                                                                                          25,576,000            24,324,000
Less treasury stock (1,028,879 and 957,500 shares) - at cost                               1,295,000               964,000
                                                                                           ---------            ----------
                                                                                                                          
        Total stockholders' equity                                                        24,281,000            23,360,000
                                                                                          ----------            ----------
                                                                                                                          
                                                                                   $      25,503,000       $    25,224,000
                                                                                          ==========            ==========
</TABLE>                                                   
                                                  
See notes to financial statements                                    

                                       F-3

<PAGE>


NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES



Consolidated Statements of Operations
<TABLE>
<CAPTION>


                                                                                     Year Ended July 31,
                                                                          ---------------------------------------

                                                                          1998              1997             1996
                                                                          ----              ----             ----
<S>                                                                <C>                 <C>             <C>             
Net patient revenue                                                      $ 34,313,000     $ 35,070,000    $  38,830,000
                                                                           ----------       ----------       ----------


Operating expenses:
   Cost of revenue                                                         22,135,000       22,905,000       24,798,000

   General and administrative                                               8,886,000        8,620,000       10,472,000

   Amortization of intangibles                                                373,000          245,000          294,000
                                                                              -------          -------          -------

      Total operating expenses                                             31,394,000       31,770,000       35,564,000
                                                                           ----------       ----------       ----------

Income from operations                                                      2,919,000        3,300,000        3,266,000
Other income:
   Gain resulting from subsidiary's stock offering                            331,000                         1,548,000
   Interest income                                                            547,000          446,000          412,000

   Loss from equity investee                                               (1,630,000)        (612,000)         (10,000)
                                                                           ----------         --------          -------

Income before income taxes                                                  2,167,000        3,134,000        5,216,000
Provision for income taxes                                                    964,000        1,278,000        1,859,000
                                                                              -------        ---------        ---------

Net income                                                              $   1,203,000      $ 1,856,000     $  3,357,000
                                                                            =========        =========        =========

Net income per common share:
   Basic                                                                         $.23             $.35             $.65
                                                                                 ====             ====             ====

   Diluted                                                                       $.23             $.35             $.64
                                                                                 ====             ====             ====

Weighted average number of shares outstanding:
   Basic                                                                    5,231,248        5,250,242        5,186,985
                                                                            =========        =========        =========

   Diluted                                                                  5,307,158        5,358,722        5,284,799
                                                                            =========        =========        =========

</TABLE>

See notes to financial statements

                                       F-4

<PAGE>


NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES



Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>


                                                         Common Stock    Additional                       Treasury Stock
                                                  Number of               Paid-In      Retained       Number of
                                                    Shares       Amount   Capital      Earnings        Shares      Cost
                                                 ----------      ------  ----------    --------       --------     ----

<S>                                             <C>          <C>     <C>         <C>            <C>          <C>      
Balance at July 31, 1995                            5,673,075  $ 6,000 $ 15,552,000  $ 3,307,000      955,000  $ (951,000)
Net income                                                                             3,357,000
Stock dividend declared on October 21, 1996           288,414             1,875,000   (1,875,000)
Exercise of common stock options                       88,832               233,000                           
                                                    ---------  --------  ----------   ----------      -------     -------


Balance at July 31, 1996                            6,050,321    6,000   17,660,000    4,789,000      955,000    (951,000)
Net income                                                                             1,856,000
Acquisition of treasury shares, $5.32 per share                                                         2,500     (13,000)
Stock dividend declared on October 10, 1997           153,025               803,000     (803,000)
Exercise of common stock options                        5,300                13,000                           
                                                    ---------  --------  ----------   ----------     --------    --------

Balance at July 31, 1997                            6,208,646    6,000   18,476,000    5,842,000      957,500    (964,000)
Net income                                                                             1,203,000              
Acquisition of treasury shares, $4.65 per share                                                        71,379    (331,000)
Exercise of common stock options                       20,100                49,000                           
                                                    ---------  -------   ----------    ---------    ---------  ----------

Balance at July 31, 1998                            6,228,746  $ 6,000 $ 18,525,000  $ 7,045,000    1,028,879 $(1,295,000)
                                                    =========   ======   ==========    =========    =========  ==========


</TABLE>

See notes to financial statements

                                       F-5

<PAGE>


NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES



Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                    Year Ended July 31,
                                                                      ------------------------------------------

                                                                      1998               1997               1996
                                                                      ----               ----               ----
<S>                                                          <C>                 <C>               <C>               
Cash flows from operating activities:
   Net income                                                  $    1,203,000        $  1,856,000     $     3,357,000              
   Adjustments to reconcile net income to net cash                                                                      
      provided  by  operating  activities:                                                                              
        Depreciation and amortization                                 479,000             355,000             454,000   
                                                                                                                        
        Provision for doubtful accounts                                32,000                                 123,000   
        Deferred tax                                                 (375,000)           (133,000)            410,000   
        Gain on subsidiary's stock offering                          (331,000)                             (1,548,000)  
        Loss from equity investee                                   1,630,000             612,000              10,000   
        Changes in:                                                                                                     
           Accounts receivable                                       (125,000)            323,000            (544,000)  
           Prepaid expenses and other assets                          (48,000)             27,000             (65,000)  
           Accounts payable, accrued expenses and other                                                                 
              liabilities                                            (318,000)             16,000            (337,000)  
           Income taxes receivable/payable                           (145,000)            225,000             207,000   
           Estimated third-party payor settlements                     14,000            (883,000)         (1,001,000)  
                                                                       ------            --------          ----------   
                                                                                                                        
                Net cash provided by operating activities           2,016,000           2,398,000           1,066,000   
                                                                    ---------           ---------           ---------   
                                                                                                                        
Cash flows from investing activities:                                                                                   
   Purchase of furniture, equipment and leasehold                                                                       
      improvements                                                   (123,000)           (134,000)           (172,000)  
   Proceeds of investments                                             20,000              20,000             285,000   
   Purchase of assets of businesses                                                    (1,889,000)                       
   Purchase of Nurse Care, Inc., net of cash acquired                                                      (2,595,000)  
   Proceeds from sale of subsidiary stock                              37,000                                           
                                                                       ------          ----------           ---------              
                                                                                                                        
                Net cash used in investing activities                (66,000)          (2,003,000)         (2,482,000)  
                                                                     -------           ----------          ----------   
                                                                                                                        
Cash flows from financing activities:                                                                                   
   Decrease in notes receivable                                                                             1,039,000   
   Purchase of treasury shares                                      (331,000)             (13,000)                       
   Proceeds from exercise of stock options                            49,000               13,000             233,000   
   Cash of subsidiary at date of stock offering                                                              (164,000)  
                                                                    ---------            --------           ---------
                                                                                                                        
        Net cash (used in) provided by financing activities         (282,000)                   0           1,108,000   
                                                                    --------             --------          ----------   
                                                                                                                        
Net increase (decrease) in cash and cash equivalents                1,668,000             395,000            (308,000)  
Cash and cash equivalents - beginning of year                       9,324,000           8,929,000           9,237,000   
                                                                    ---------           ---------           ---------   
                                                                                                                        
Cash and cash equivalents - end of year                        $   10,992,000        $  9,324,000     $     8,929,000   
                                                                   ==========           =========           =========   
                                                                                                                        
Supplemental  disclosures  of cash flow  information:                                                                
   Cash paid during the year for:                                                                                    
      Interest                                                 $        2,000        $    11,000      $        14,000    
      Income taxes                                             $    1,512,000        $ 1,584,000      $     1,677,000    
                                                                                                                     
                                                                                                                     
Supplemental  disclosure of noncash  investing  and  financing  activities - see     
Notes 6 and 7.

</TABLE>

See notes to financial statements

                                       F-6

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Nature of business:

  National Home Health Care Corp. and subsidiaries (the "Company") is a provider
  of home health care services,  including nursing care, personal care and other
  specialized  therapies.  Until May 1996,  the  Company  was also  engaged as a
  provider of outpatient medical services (see Note 6).

  Principles of consolidation:

  The consolidated  financial  statements  include the accounts of National Home
  Health  Care  Corp.  and  its  wholly  owned  subsidiaries.   All  significant
  intercompany   accounts  and   transactions   have  been   eliminated  in  the
  consolidated  financial statements.  During the fourth quarter of fiscal 1996,
  the  Company's  interest in its  previously  wholly  owned  subsidiary,  which
  provided  outpatient  medical services,  was reduced to 37.6%, and was further
  reduced to 30.5% at July 31, 1998.  Accordingly,  the Company began accounting
  for this entity using the equity  method  during the fourth  quarter of fiscal
  1996.

  Revenue recognition:

  Net patient  revenue is recorded at the estimated net  realizable  amount from
  third-party payors and patients.

  Under  Medicare  and  Medicaid  cost  reimbursement  programs,  the Company is
  reimbursed for services  rendered to covered  patients.  Revenues derived from
  these  programs  are based in part on cost  reimbursement  principles  and are
  subject to examination and  retroactive  adjustment.  Management  continuously
  evaluates  the  outcome  of  these  reimbursement  examinations  and  provides
  allowances  for any  potential  adjustments.  In the  opinion  of  management,
  retroactive  adjustments,  if any,  would  not be  material  to the  financial
  position or results of operations of the Company.

  Approximately  40%,  39% and 39% of net patient  revenue for the fiscal  years
  ended July 31, 1998, 1997 and 1996,  respectively,  were derived under federal
  and state third-party reimbursement programs.

  Cash equivalents:

  For the purposes of the  statements of cash flows,  the Company  considers all
  highly liquid investment instruments purchased with a maturity of three months
  or less to be cash equivalents.

                                       F-7

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued)

  Furniture, equipment and leasehold improvements:

  Furniture,   equipment  and  leasehold   improvements   are  stated  at  cost.
  Depreciation is being provided on the straight-line  method over the estimated
  useful  lives of the assets  (generally  five to ten years).  Amortization  of
  leasehold  improvements is being provided on the straight-line method over the
  various lease terms or estimated useful lives, if shorter.

  Excess of cost over fair value of net assets of business acquired:

  The excess of cost over the fair value of net assets  acquired  (goodwill)  is
  being  amortized  principally  over a period  of 20  years on a  straight-line
  basis. Goodwill is evaluated periodically and adjusted if necessary, if events
  and circumstances indicate that a permanent decline in value below the current
  unamortized historical cost has occurred.

  Net income per share:

  In the  second  quarter of fiscal  1998,  the  Company  adopted  Statement  of
  Financial  Accounting  Standards No. 128 ("SFAS  128"),  "Earnings Per Share",
  which  establishes  new standards for  computing and  presenting  earnings per
  share  and  simplifies  previously  issued  accounting  standards  related  to
  earnings  per share.  SFAS 128 has  replaced  the  concept of  "primary"  with
  "basic" and the concept of "fully-diluted" with "diluted".

  The basic  calculation  is determined by dividing net income  attributable  to
  common shares outstanding (the basic numerator) by the weighted average number
  of common shares outstanding (the basic denominator) during the period.

  The diluted calculation is determined by adjusting the basic numerator for any
  changes in income or loss that  would  result  from the  assumed  exercise  of
  potentially  issued common  shares.  Additionally,  the basic  denominator  is
  increased  to include  the  additional  number of common  shares that would be
  outstanding  if the  potentially  issued  common  shares had been  issued,  if
  dilutive.  Potentially  issued common shares,  consisting of options,  are not
  included  in this  calculation  where  the  effect of the  inclusion  would be
  antidilutive. The treasury stock method is used to reflect the dilutive effect
  of outstanding options and warrants.


                                       F-8

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued)

  SFAS 128 requires  restatement of prior periods.  The  application of SFAS 128
  for the fiscal year ended July 31, 1997,  had no impact and the effect for the
  fiscal  year ended July 31, 1996  resulted in a reduction  of $.01 per diluted
  share.

  SFAS 128 also requires  dual  presentation  of basic and diluted  earnings per
  share on the face of the consolidated statement of operations for all entities
  with complex capital structures and requires a reconciliation of the numerator
  and  denominator of the basic earnings per share  computation to the numerator
  and denominator of the diluted EPS computation.  The  reconciliations  for the
  years ended July 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>


                                                                       Year Ended July 31,
                                    -------------------------------------------------------------------------------------

                                             1998                             1997                             1996
                                    -----------------------         -----------------------          --------------------

                                    Income          Shares           Income          Shares          Income        Shares
                                    ------          ------           ------          ------          ------        ------
<S>                              <C>                 <C>          <C>                  <C>         <C>         <C>      
 Basic EPS
  Net income                     $   1,203,000       5,231,248    $  1,856,000         5,250,242   $  3,357,000    5,186,985
  Effect of dilutive securities -
   common stock options                                 75,910                           108,480                      97,814
                                     ---------       ---------       ---------         ---------      ----------   ---------

  Diluted EPS                    $   1,203,000       5,307,158    $  1,856,000         5,358,722   $  3,357,000    5,284,799
                                     =========       =========       =========         =========      ==========   =========
</TABLE>

  Investments:

  The Company's  investments  are accounted for in accordance  with Statement of
  Financial Accounting Standards No. 115, "Accounting for Certain Investments in
  Debt and Equity  Securities"  which requires that,  except for debt securities
  classified as  "held-to-maturity  securities",  investments in debt and equity
  securities be reported at fair value.

                                       F-9

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued)

  Investment  securities  available  for  sale at July  31,  1998  and  1997 are
summarized as follows:
<TABLE>
<CAPTION>


                                                                       Amortized Cost (1)
                                                                  --------------------------

                                                                     1998            1997
                                                                     ----            ----
  
<S>                                                              <C>             <C>          
Floating rate debentures issued by New York State, maturing
   in one to five years                                          $     160,000   $     160,000
Floating rate debentures issued by New York State, maturing
   in five to ten years                                                150,000         160,000
Floating rate debentures issued by New York State, maturing
   after ten years                                                     160,000         170,000

  Other                                                                 18,000          18,000
                                                                        ------          ------

                                                                 $     488,000   $     508,000
                                                                       =======         =======
</TABLE>
-----------------

 (1)    Amortized  cost  approximates  market  value.  Accordingly,  there is no
        unrealized holding gain or loss.

  Fair value of financial instruments:

  The carrying  amount  reported in the  consolidated  balance  sheets for cash,
  accounts  receivable,  accounts payable and accrued  liabilities  approximates
  fair value because of the  immediate or  short-term  maturity of the financial
  instruments.

  Accounting for stock options:

  The Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS
  123"), "Accounting for Stock-Based Compensation", in fiscal 1997 and continues
  to account for employee stock-based compensation in accordance with Accounting
  Principles  Board  Opinion No. 25 ("APB Opinion  25"),  "Accounting  for Stock
  Issued to Employees" using intrinsic  values with  appropriate  disclosures in
  conformity with the fair values based method of SFAS 123.

  Recently issued accounting pronouncements:

  In June  1997,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
  Statement of Financial Accounting  Standards No. 130 ("SFAS 130"),  "Reporting
  Comprehensive Income". SFAS 130

                                      F-10

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued)

  Recently issued accounting pronouncements:  (continued)

  defines the concept of  "comprehensive  income" and  establishes the standards
  for reporting comprehensive income. Comprehensive income is defined to include
  net income, as currently  recorded,  as well as unrealized gains and losses on
  available-for-sale  securities,  foreign currency translation  adjustments and
  certain other items not included in the statement of operations. SFAS 130 also
  sets forth  requirements  on how  comprehensive  income should be presented as
  part of an issuer's  financial  statements.  SFAS 130 is effective  for fiscal
  years  beginning  after December 15, 1997. The Company is currently  assessing
  how it will disclose  comprehensive  income in its financial  statements.  The
  adoption  of SFAS 130 will not affect the  Company's  earnings,  liquidity  or
  capital resources.
  
  In June 1997, the FASB issued Statement of Financial  Accounting Standards No.
  131 ("SFAS  131")  "Disclosure  About  Segments of an  Enterprise  and Related
  Information",  which  defines the  criteria by which an issuer is to determine
  the number and nature of its "operating segments" and sets forth the financial
  information  that is required to be disclosed  about such operating  segments.
  SFAS 131 is effective for fiscal years  beginning after December 15, 1997. The
  Company  is  currently  assessing  the  manner in which it will  disclose  the
  required information.

  In June 1998, the FASB issued Statement of Financial  Accounting Standards No.
  133  ("SFAS  133")   "Accounting   for  Derivative   Instruments  and  Hedging
  Activities",  requiring the recognition of all derivatives as either assets or
  liabilities on the balance sheet and  measurement  of the  derivatives at fair
  value.  SFAS 133 is effective for fiscal years  beginning after June 15, 1999.
  The Company is currently assessing the effect, if any, of this pronouncement.

  Use of estimates:

  The preparation of financial  statements in conformity with generally accepted
  accounting  principles  requires  management to make estimates and assumptions
  that affect the reported  amounts of assets and liabilities at the date of the
  financial  statements and the reported amounts of revenues and expenses during
  the reporting period.  Actual results could differ from those estimates.  Such
  estimates relate primarily to goodwill,  depreciable assets, third-party payor
  settlements  and valuation  reserves for accounts  receivable and deferred tax
  assets.

                                      F-11

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  (Continued)

  Workers' compensation:

  The Company  self-insures  up to specified  limits  certain  risks  related to
  workers' compensation liability.  The estimated costs of existing and expected
  future  claims under the insurance  program are accrued based upon  historical
  loss development trends and may be subsequently  revised based on developments
  relating to such claims.

  Stock dividend:

  On October 21, 1996,  the  Company's  Board of  Directors  declared a 6% stock
  dividend payable on December 4, 1996 for shareholders of record as of November
  8, 1996. A total of 288,414  shares of common stock were issued in  connection
  with the dividend.

  On October 10, 1997,  the  Company's  Board of  Directors  declared a 3% stock
  dividend payable on December 8, 1997 for shareholders of record as of November
  6, 1997. A total of 153,025  shares of common stock were issued in  connection
  with the dividend.

  NOTE 2 - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

  Furniture,  equipment  and leasehold  improvements  are stated at cost and are
summarized as follows:


                                                               July 31,
                                                         ---------------------

                                                         1998            1997
                                                         ----            ----

  Furniture and equipment                          $     849,000    $   753,000

  Leasehold improvements                                 186,000        159,000
                                                         -------        -------

                                                       1,035,000        912,000
  Less accumulated depreciation and amortization         640,000        534,000
                                                         -------        -------

  Balance                                          $     395,000    $   378,000
                                                         =======        =======

  The net book value of furniture and equipment held under capital leases was $0
  at July 31,  1998 and 1997.  Depreciation  expense  includes  depreciation  on
  assets held under capital leases.

                                      F-12

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 3 - EXCESS OF COST OVER FAIR VALUE

  Changes  in the  excess of cost over fair  value of net  assets of  businesses
  acquired during the two years ended July 31, 1998 are as follows:


                                                           Year Ended July 31,
                                                          ---------------------

                                                          1998            1997
                                                          ----            ----

  Balance - beginning of year                        $  3,350,000  $  2,557,000
  Consideration for acquisition                                         929,000
  Reduction from subsidiary stock offering (Note 6)
  Amortization                                           (171,000)     (136,000)
                                                        ---------      --------

  Balance - end of year                              $  3,179,000  $  3,350,000
                                                        =========     =========


  NOTE 4 - OTHER INTANGIBLE ASSETS

  Other intangible assets are as follows:

                                                         July 31,
                                                   ---------------------

                                                    1998           1997
                                                    ----           ----

  Covenants not to compete                   $    775,000    $   775,000

  Personnel files                                 678,000        678,000
  Patient files                                   352,000        352,000
                                                  -------        -------

                                                1,805,000      1,805,000
  Less accumulated amortization                 1,060,000        858,000
                                                ---------        -------

                                             $    745,000    $   947,000
                                                  =======        =======      

  Other  intangible  assets are being amortized using the  straight-line  method
  over a period of three to ten years.

                                      F-13

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

  Accounts payable and accrued expenses are as follows:


                                                               July 31,
                                                          ------------------

                                                          1998        1997
                                                          ----        ----

  Trade accounts payable                          $    541,000    $   621,000

  Accrued employee compensation and benefits           416,000        643,000

  Other                                                 56,000         67,000
                                                        ------         ------

                                                  $  1,013,000    $ 1,331,000
                                                     =========      =========


  NOTE 6 - SUBSIDIARY STOCK OFFERING

  In January 1996, the outpatient  medical  service  business of the Company was
  reorganized as SunStar Healthcare,  Inc. ("SunStar"),  a newly-formed,  wholly
  owned subsidiary of the Company.  The Company reduced its ownership percentage
  of SunStar to 37.6% through a public  offering of 1,495,000  shares at a price
  of $5.00 per share,  aggregating  approximately  $6,083,000,  net of expenses.
  Subsequent to the offering,  the Company is accounting  for its  investment in
  SunStar using the equity method of  accounting.  In connection  with SunStar's
  public stock  offering,  the Company  recorded a gain before tax of $1,548,000
  representing  the net increase in book value of the  Company's  investment  in
  SunStar at that date.  Deferred income taxes of $524,000 have been provided on
  the gain.

  In fiscal 1998, the Company's  ownership  percentage of SunStar was reduced to
  30.5% as a result of SunStar  issuing  additional  shares of its common  stock
  pursuant  to a  private  placement  in which it  received  $1,318,000,  net of
  expenses. In connection  therewith,  the Company recorded a gain before tax of
  $302,000  representing  the  net  increase  in  book  value  of the  Company's
  investment. Also in fiscal 1998, the Company sold 10,000 shares of SunStar for
  $37,000 and recorded a gain of $29,000.


                                      F-14

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 6 - SUBSIDIARY STOCK OFFERING
  (Continued)

  Summarized  financial  data of  SunStar  for the  years  ended  July 31 are as
follows:
<TABLE>
<CAPTION>


                                                      1998              1997              1996
                                                  ----------        ------------       -----------
<S>                                          <C>               <C>               <C>           
  Total current assets                         $    8,150,000    $    5,105,000    $    6,403,000
  Total assets                                      8,650,000         6,371,000         7,499,000
  Total current liabilities                         6,319,000           881,000           505,000
  Total liabilities                                 6,402,000           989,000           522,000
  Total shareholders' equity                        2,248,000         5,382,000         6,977,000
  Total revenues                                    9,079,000         4,729,000         5,080,000
  Net loss                                         (4,567,000)       (1,631,000)         (222,000)
  Market value of the Company's investment          4,228,000*        4,500,000 *       4,233,000 *
</TABLE>

----------------------
*    The market  value of the  Company's  investment  is based on quoted  market
     prices and does not  necessarily  represent the amount that may be realized
     upon disposition of the investment.


  NOTE 7 - ACQUISITIONS

  On March 25, 1997,  the Company  acquired  certain  assets of C.J.  Home Care,
  Inc.,  d/b/a  Garden City Home Care,  for  approximately  $677,000,  including
  acquisition  costs of $27,000.  The assets  purchased  consisted  of personnel
  files of  $100,000,  patient  files of $50,000,  furniture  and  equipment  of
  $10,000, covenants not to compete of $200,000 and goodwill of $317,000.

  On May 29, 1997,  the Company  acquired  certain  assets of Home Health Aides,
  Inc.  and  H.H.A.  Aides,  Inc.,  for  approximately   $1,212,000,   including
  acquisition  costs of $77,000.  The assets  purchased  consisted  of personnel
  files of $100,000,  patient  files of  $300,000,  furniture  and  equipment of
  $25,000, covenant not to compete of $175,000 and goodwill of $612,000.

  The above acquisitions have been accounted for utilizing  purchase  accounting
  principles. Accordingly, the results of these operations have been included in
  the  accompanying   consolidated  financial  statements  since  the  dates  of
  acquisition.

  Had the operations of the above  acquisitions been acquired on August 1, 1995,
  there would have been no material effect on the consolidated operations of the
  Company for the years ended July 31, 1997 and July 31, 1996.

                                      F-15

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997



  NOTE 7 - ACQUISITIONS
  (Continued)


  On August 4, 1995, the Company  acquired all of the outstanding  common shares
  of Nurse Care,  Inc., the parent company of New England Home Care,  Inc. ("New
  England").  New England is a licensed and Medicare  certified home health care
  agency providing  services in Fairfield and New Haven counties in the State of
  Connecticut.  The purchase  price of $3,150,000  was  generated  from internal
  funds.  The  acquisition was accounted for as a purchase and the excess of the
  purchase  price over the fair value of the assets  acquired,  $2,049,000,  was
  allocated to goodwill.  Had the  operations  been  acquired on August 1, 1995,
  there would have been no material effect on the consolidated operations of the
  Company for the fiscal year ended July 31, 1996.


  NOTE 8 - INCOME TAXES

  The provision for income taxes is summarized as follows:


                                           Year Ended July 31,
                                -----------------------------------------

                                1998               1997              1996
                                ----               ----              ----
  Current:
   Federal               $       920,000    $    1,156,000    $    1,340,000

   State and local               419,000           255,000           109,000
                                --------         ---------         ---------

                               1,339,000         1,411,000         1,449,000
  Deferred                      (375,000)         (133,000)          410,000
                                --------         ---------         ---------
                         $       964,000    $    1,278,000    $    1,859,000
                                ========         =========         =========


                                      F-16

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 8 - INCOME TAXES
  (Continued)

  Deferred income taxes reflect the tax impact of temporary  differences between
  the amounts of assets and  liabilities  for financial  reporting  purposes and
  such  amounts as measured by tax laws and  regulations.  The  principal  items
  making up the deferred income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>


                                                                        Year Ended July 31,
                                                                 --------------------------------------

                                                                 1998             1997             1996
                                                                 ----             ----             ----

<S>                                                     <C>               <C>          
  Loss from equity investee                               $    (316,000)    $   (208,000)
  State tax net operating loss carryforwards                    (59,000)          75,000    $     (114,000)

  Tax on gain from sale of subsidiary stock                                                        524,000
                                                               --------         --------           -------
                                                          $    (375,000)    $   (133,000)   $      410,000
                                                               ========         ========           =======


  The deferred tax assets and liabilities are as follows:


                                                                                        July 31,
                                                                ----------------------------------------------------------
                                                                         1998                              1997
                                                                --------------------------       -------------------------

                                                                Assets        Liabilities        Assets        Liabilities
                                                                ------        -----------        ------        -----------

  Accrued liability and reserves                           $    248,000                    $      191,000

  State net operating loss carryforwards                         41,000                            39,000

  Investment in unconsolidated investee                                     $    0                          $      316,000
                                                                -------         --                -------          -------
                                                                289,000          0                230,000          316,000
  Valuation allowance                                                 0                                 0  
                                                                -------         --                -------          -------

                                                           $    289,000     $    0         $      230,000   $      316,000
                                                                =======         ===               =======          =======
</TABLE>

  One subsidiary of the Company has incurred  losses which can be used to offset
  state taxable  income  through 2012. At July 31, 1998, the total net operating
  loss  carryforward  as applicable  to  Connecticut  amounted to  approximately
  $580,000.

  No valuation  allowance has been  recorded as the Company  believes that it is
  more  likely  than not that the  benefit of the  deferred  tax assets  will be
  realized.

                                      F-17

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 8 - INCOME TAXES
  (Continued)


  The reconciliation of the statutory tax rate to the effective tax rate for the
  three years ended July 31, 1998 is as follows:


                                                       1998    1997      1996
                                                       ----    ----      ----

  Statutory rate                                        34%     34%       34%
  State and local taxes (net of federal tax effect)     12      5         1
  Federal tax credit                                    (6)     (2)
  Permanent differences                                  8       4        1

  Other                                                 (4)  
                                                        --      --        --

  Effective rate                                        44%     41%       36%
                                                        ==      ==        ==

  NOTE 9 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

  Most of the  Company's  business is with  customers who are in the health care
  industry and with governmental agencies.

  The Company  provides  temporary  health care personnel to in-home patients in
  the New York City  metropolitan  area and State of Connecticut.  Credit losses
  relating to customers  historically have been minimal and within  management's
  expectations.

  At July 31, 1998,  the Company  maintained  approximately  53% of its cash and
  cash equivalents with one financial institution.

  Under  certain  federal  and state  third-party  reimbursement  programs,  the
  Company received net patient revenues approximating  $13,666,000,  $13,610,000
  and   $15,211,000   for  the  years  ended  July  31,  1998,  1997  and  1996,
  respectively.  The Company also received net patient revenues of approximately
  $7,488,000,  $7,624,000 and $9,275,000 for the years ended July 31, 1998, 1997
  and 1996, respectively,  from a private company. At July 31, 1998, the Company
  had  an  aggregate   outstanding   receivable   from  the  federal  and  state
  reimbursement   programs  of  $2,151,000  and  an  outstanding  receivable  of
  $1,896,000 from the private company.



                                      F-18

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 10 - STOCK OPTION PLAN

  In 1992,  the  stockholders  approved  the 1992 Stock  Option  Plan (the "1992
  Plan") designed to provide an incentive to key employees  (including directors
  and officers who are key  employees) and to Directors who are not employees of
  the  Company.  The 1992 Plan  authorizes  the granting of both  incentive  and
  nonqualified  stock options to purchase up to 500,000  shares of the Company's
  common stock.

  The 1992 Plan is  administered  by the  Compensation  Committee  which has the
  authority  to determine  when  options are  granted,  the term during which an
  option may be exercised  (provided no option has a term  exceeding ten years),
  the exercise price and the exercise period. The exercise price shall generally
  not be less than the fair market value on the date of grant.  No option may be
  granted under the 1992 Plan after August 16, 2002.

  At July 31,  1998,  419,476  shares of the  Company's  common  stock have been
  reserved for future issuance pursuant to the 1992 Plan.

  A summary of the status of the  Company's  stock  options as of July 31, 1998,
  1997 and 1996 and changes  during the years ending on those dates is presented
  below:
<TABLE>
<CAPTION>


                                               1998                         1997                          1996
                                       ----------------------         -------------------------     ------------------------

                                                    Weighted-                       Weighted-                      Weighted-
                                                    Average                          Average                        Average
                                                    Exercise                        Exercise                       Exercise
              Options                  Shares       Price             Shares          Price          Shares          Price
              -------                  ------       --------          ------        --------         ------       ---------
 
<S>                                <C>           <C>          <C>            <C>                     <C>     <C>  
 Outstanding at beginning of
   year                               204,042 (2)   $2.77 (2)     203,982 (1)      $2.85 (1)           295,502   $2.77
  Granted                              60,000        4.81                                               12,000    6.25
                                       
  Exercised                           (20,100)       2.47          (5,300)          2.47               (88,832)   2.63
                                      
  Forfeited                            (2,184)       5.70                                              (26,234)   2.91
                                      -------                     -------                              -------                     
                                      
  Outstanding at end of year          241,758        3.29         198,682          2.86                192,436    3.03
                                      =======                     =======                              =======
                                      
  Options exercisable at year-end     241,758        3.29         198,682          2.86                192,436    3.03
                                      =======                     =======                              =======
                                      
  Weighted-average fair value of
   options granted during the year                   1.97                                                         2.53

</TABLE>

--------
(1)   Adjusted for 6% stock dividend  declared in October 1996. 
(2)   Adjusted for 3% stock dividend declared in October 1997.


                                      F-19

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 10 - STOCK OPTION PLAN
  (Continued)

  The  fair  value  of  options  at  date  of  grant  was  estimated  using  the
  Black-Scholes  option pricing model utilizing the following  assumptions as of
  July 31, 1998:  risk-free  interest rate of 5.75%,  expected option life of 10
  years,  expected stock price volatility of 42% and expected  dividend yield of
  3%.

  The Company applies APB Opinion 25 and related  interpretations  in accounting
  for its options. Accordingly, no compensation cost has been recognized for its
  stock option grants.  The effect of applying SFAS No. 123 on 1996 and 1998 pro
  forma net income is not necessarily  representative of the effects on reported
  net income for future years due to, among other things, (1) the vesting period
  of stock options and (2) the fair value of additional  stock options in future
  years.  Had the Company  elected to recognize  compensation  cost based on the
  fair value of the options at the date of grant as  prescribed by SFAS 123, net
  income for the year ended July 31, 1998 would have been $1,085,000 or $.21 and
  $.20 per basic and  diluted  shares,  respectively.  There  would have been no
  material effect on the Company's net income or net income per common share for
  the year ended July 31, 1996.

  The following table summarizes  information about stock options outstanding at
July 31, 1998:
<TABLE>
<CAPTION>


                                   Options Outstanding and Exercisable
                                                Weighted-
                                  Shares         Average           Weighted-
                               Outstanding      Remaining           Average
            Range                   at         Contractual         Exercise
       Exercise Prices        July 31, 1998        Life              Price
       ---------------        -------------    -----------         --------
      <S>                  <C>              <C>                <C>  
        $2.39 - $2.63           159,920          1 year            $2.58
                       
        $3.76                    10,918          4 years            3.76
        $5.70                    10,920          8 years            5.70
        $4.81                    60,000          9 years            4.81
                                -------
                                241,758
                                =======
</TABLE>


                                      F-20

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 11 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

  [a]  Effective  April 1, 1997 the Company  amended and restated the  Company's
       Employee Savings and Stock Investment Plan organized under Section 401(k)
       of  the  Internal  Revenue  Code.  Under  the  new  plan,  employees  may
       contribute  up to 15% of their  salary  into  the  plan,  limited  to the
       maximum amount allowable under federal tax regulations.  The Company will
       match 100% of employees' contributions,  provided, that in no event shall
       the matching  contributions on behalf of any employee exceed 2.5% of each
       employee's   compensation.   The   Company   may  also  make   additional
       contributions at its discretion.  An employee may invest in Company stock
       and several mutual funds. The Company's  matching  contributions for each
       of the years ended July 31, 1998,  1997 and 1996 were $105,000,  $135,000
       and $122,000, respectively.

  [b]  The Company has  employment  agreements  with four officers  which expire
       through  October  2002.  The  aggregate  commitment  for  future  salary,
       excluding bonuses, under the agreements is $2,633,000. One agreement also
       provides for increases based on increases in the consumer price index and
       additional  annual  compensation of up to $150,000 based on 5% of pre-tax
       income, as defined,  in excess of $3,000,000.  Another agreement provides
       for additional  compensation  based on 3% of income from  operations,  as
       defined, in excess of $3,000,000.

  [c]  The Company rents various office facilities  through 2000 under the terms
       of several lease agreements which include escalation clauses.

       At July 31, 1998, minimum annual rental commitments under  noncancellable
       operating leases are as follows:


     Year Ending
      July 31,


      1999                                      $     406,000
      2000                                            161,000
      2001                                            119,000
      2002                                             54,000
      2003                                             54,000
      Thereafter                                        5,000
                                                        -----
                                                $     799,000
                                                      =======

                                      F-21

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 11 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
  [c] (Continued)

       Rent  expense  for the  years  ended  July  31,  1998,  1997 and 1996 was
       approximately $527,000, $435,000 and $655,000, respectively.

       One lease is with a company  controlled by the Company's  Chief Executive
       Officer. Rent expense under such lease approximates $129,000 per year.

  [d]  The  Company  has a line of credit  with its bank  totalling  $2,000,000.
       Advances against the line are to be  collateralized  by the assets of the
       Company.  In addition,  a subsidiary of the Company has a secured line of
       credit. The maximum amount that can be borrowed under the secured line of
       credit  shall not exceed the lesser of eligible  accounts  receivable  or
       $2,000,000.  Both credit  facilities  bear interest at the alternate base
       commercial  lending rate of the bank and expire January 30, 1999. At July
       31, 1998, there were no outstanding balances under either line of credit.


  NOTE 12 - SEGMENT INFORMATION

  The Company's  operations  are in home health care  services and,  through May
  1996, outpatient medical services.  Home health care services are performed in
  the New York  metropolitan  area and in the State of  Connecticut.  Outpatient
  medical  services  were  performed  in Brevard  and Volusia  County,  Florida.
  Subsequent  to  the  Company's  sale  of its  majority  ownership  in  SunStar
  Healthcare,  Inc.,  during the fourth quarter of fiscal 1996,  such operations
  are not  consolidated  and,  accordingly,  are not  included in the  following
  segment information.

                                      F-22

<PAGE>


  NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

  Notes to Financial Statements
  July 31, 1998 and 1997


  NOTE 12 - SEGMENT INFORMATION
  (Continued)

  Subsequent  to 1996,  the  Company's  operations  consist  only of home health
  services. Revenue, operating expenses and income from operations pertaining to
  the Company's segments for 1996 is as follows:


                                                           Year Ended
                                                            July 31,
                                                              1996
                                                           ----------
  Net patient revenue:
   Home health care services                            $   35,137,000
   Outpatient medical services                               3,693,000
                                                            ----------

                                                            38,830,000
                                                            ----------
  Operating expenses:
   Home health care services                                31,968,000
   Outpatient medical services                               3,596,000
                                                            ----------

                                                            35,564,000
                                                            ----------
  Income from operations:                                   
   Home health care services                                 3,241,000
   Outpatient medical services                                  25,000
                                                            ----------

                                                        $    3,266,000
                                                            ==========


  NOTE 13 - SUBSEQUENT EVENT

  On August 10, 1998, the Company  acquired  certain assets of Bryan  Employment
  Agency,  Inc.,  d/b/a Bryan Home Care Services for  approximately  $1,943,000,
  including  acquisition  costs of $8,000.  The assets  purchased  consisted  of
  personnel  files  of  $285,000,  patient  files  of  $285,000,  furniture  and
  equipment  of $30,000,  covenants  not to compete of $200,000  and goodwill of
  $1,143,000.  Had the operations  been acquired on August 1, 1997,  there would
  have been no material effect on the consolidated operations for the year ended
  July 31, 1998.

  On  September  25,  1998,  the  Company  signed a  definitive  stock  purchase
  agreement with Accredited  Health Services,  Inc.  (Accredited),  a New Jersey
  licensed  home health  care agency  based in Bergen  County,  New Jersey.  The
  purchase  price  for  100%  of  Accredited's   outstanding   common  stock  is
  approximately $1,800,000 in cash, subject to post-closing adjustment.

 
                                    F-23

<PAGE>






  INDEPENDENT AUDITORS' REPORT ON SCHEDULE

  Board of Directors and Stockholders
  National Home Health Care Corp.
  New York, New York


  The audits referred to in our report dated October 7, 1998 on the consolidated
  financial  statements  of National  Home Health Care Corp.  and  subsidiaries,
  which appears in Part II, also  included  Schedule II for each of the years in
  the three-year period ended July 31, 1998. This schedule is the responsibility
  of the Company's management. Our responsibility is to express an opinion based
  on our audits. In our opinion,  the financial  statement  schedule referred to
  above, when considered in relation to the basic financial  statements taken as
  a whole,  presents  fairly in all material  respects the information set forth
  therein,  in compliance  with the  applicable  accounting  regulations  of the
  Securities and Exchange Commission.



  Richard A. Eisner & Company, LLP

  New York, New York
  October 7, 1998


                                      F-24

<PAGE>

                                   Schedule II
                        Valuation and Qualifying Accounts
<TABLE>
<CAPTION>



          Column A                                  Column B                Column C                 Column D            Column E

                                                                                 Additions
                                                   ---------------------------------------------------------------------------------

                                                                         (1)             (2)

                                                     Balance           Charged to   Charged to
                                                  at Beginning         Costs and  Other Accounts -    Deductions -       Balance at
                                                    of Period           Expenses     Describe          Describe       End of Period
                                                  -------------        ---------- ---------------     -------------   --------------
 
<S>                                                <C>               <C>                               <C>              <C>         
Description:

  Year ended July 31, 1998:

      Allowance deducted from asset account
      Allowance for uncollectible accounts         $   327,000       $   32,000                    (A) $     (64,000)   $    295,000
                                                       =======           ======                              =======         =======

   Year ended July 31, 1997:

      Allowance deducted from asset account                                                                           

      Allowance for uncollectible accounts         $   414,000                                     (A) $     (87,000)   $    327,000
                                                       =======          =======                              =======         =======

   Year ended July 31, 1996:

      Allowance deducted from asset account                                                                           

      Allowance for uncollectible accounts      (B) $  439,000       $  123,000                    (A) $    (148,000)   $    414,000
                                                       =======          =======                             ========         =======

</TABLE>
------------------

(A)    Represents actual write-offs.
(B)    Includes $340,000 acquired in acquisition of Nurse Care, Inc.



  See notes to financial statements

                                      F-25

<PAGE>


         (3)  Exhibits


  Exhibit                                                  Document
  Number

3.1                      Certificate of Incorporation. Incorporated by reference
                         to the Registrant's  Registration Statement on Form S-1
                         (No.  2-86643) filed September 20, 1983 (the "1983 Form
                         S-1").
  
3.2                      Certificate    of   Amendment   to    Certificate    of
                         Incorporation.   Incorporated   by   reference  to  the
                         Registrant's  Annual Report on Form 10-K for the fiscal
                         year ended July 31, 1992 (the "1992 Form 10-K").
  
3.3                      By-laws.  Incorporated  by  reference  to the 1983 Form
                         S-1.
  
10.1                     1992 Stock  Option Plan.  Incorporated  by reference to
                         the  Registrant's  Annual  Report  on Form 10-K for the
                         fiscal year ended July 31, 1993 (the "1993 Form 10-K").

10.2                     Incentive Stock Option Plan.  Incorporated by reference
                         to the 1993 Form 10-K.

10.3                     Agreement  dated  January 1, 1994 between  Allen Health
                         Care  Services  and  VNS  Home  Care.  Incorporated  by
                         reference  to the  Registrant's  Annual  Report on Form
                         10-K for the fiscal year ended July 31, 1994 (the "1994
                         Form 10-K").

10.4                     Employment  Agreement  dated  as of  November  1,  1997
                         between the Registrant and Steven Fialkow. Incorporated
                         by reference to the  Registrant's  Quarterly  Report on
                         Form 10-Q for the fiscal quarter ended January 31, 1998
                         (the "January 31, 1998 Form 10-Q").

10.5                     Employment  Agreement  dated  as of  November  1,  1997
                         between  the   Registrant  and  Frederick  H.  Fialkow.
                         Incorporated  by reference to the January 31, 1998 Form
                         10-Q.

10.6                     Employment  Agreement  dated  as of  November  1,  1997
                         between   the   Registrant   and   Robert  P.   Heller.
                         Incorporated  by reference to the January 31, 1998 Form
                         10-Q.

10.7                     Employment  Agreement  dated  as of  November  1,  1997
                         between   the   Registrant   and   Richard    Garofalo.
                         Incorporated  by reference to the January 31, 1998 Form
                         10-Q.


                                      -21-

<PAGE>


Exhibit                                Document

10.8                     Agreement   between  Division  of  Social  Services  of
                         Suffolk   County   and   Health    Acquisition    Corp.
                         Incorporated  by reference to the  Registrant's  Annual
                         Report on Form 10-K for the fiscal  year ended July 31,
                         1991.
  
10.9                     Agreement  between  Nassau County  Department of Social
                         Services and Allen Health Care  Services.  Incorporated
                         by reference to the 1992 Form 10-K.
 
10.10                    Agreement  dated  January  1,  1994  between   Catholic
                         Medical   Center   of   Brooklyn   and   Queens,   Inc.
                         Incorporated  by reference to the  Registrant's  Annual
                         Report on Form 10-K for the fiscal  year ended July 31,
                         1994.

10.11                    Letter dated June 1, 1992 from Public Health Council of
                         the  State of New York  Department  of Health to Health
                         Acquisition  Corp.  d/b/a Allen  Health Care  Services.
                         Incorporated by reference to the 1992 Form 10-K.

10.12                    Letter  from  Joint   Commission  on  Accreditation  of
                         Healthcare   Organizations  awarding  accreditation  to
                         Allen   Health   Care,   dated   September   20,  1993.
                         Incorporated by reference to the 1993 Form 10-K.

10.13                    The Registrant's  Employee Savings and Stock Investment
                         Plan under Section 401(k) of the Internal Revenue Code.
                         Incorporated  by reference to the  Registrant's  Annual
                         Report on Form 10-K for the fiscal  year ended July 31,
                         1997 (the "1997 Form 10-K").
 
10.14                    Letter  Agreement  dated  February 20, 1998 providing a
                         Secured  Advised  Line of  Credit  from the Bank of New
                         York to National Home Health Care Corp. Incorporated by
                         reference to the January 31, 1998 Form 10-Q.
 
10.15                    Letter  Agreement  dated  February 20, 1998 providing a
                         Secured  Advised  Line of  Credit  from the Bank of New
                         York to New England  Home Care,  Inc.  Incorporated  by
                         reference to the January 31, 1998 Form 10-Q.
 
21.1                     List of Subsidiaries. Incorporated  by reference to the
                         1997 Form 10-K.

23.1 *                   Consent of Richard A. Eisner & Company, LLP


                                      -22-

<PAGE>




  Exhibit                    Document


  27.1  *                 Financial Data Schedule

---------------
*   Filed herewith

         (b)  Reports on Form 8-K.  None have been filed  during the last fiscal
quarter.

                                      -23-

<PAGE>




                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
  Exchange Act of 1934,  the Registrant has duly caused this report to be signed
  on its behalf by the undersigned, thereunto duly authorized.

                                      NATIONAL HOME HEALTH CARE CORP.

                                       /s/  Robert P. Heller
                                       ---------------------------------------
                                      By:      Robert P. Heller
                                               Vice President of Finance
                                               and Chief Financial Officer

  Dated:  October 29, 1998

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
  this  report  has been  signed on the above date by the  following  persons on
  behalf of the Registrant and in the capacities indicated.


  /s/ Frederick H. Fialkow                   Chairman of the Board of Directors 
  ------------------------                   and Chief Executive Officer
  Frederick H. Fialkow

  /s/ Steven Fialkow                         President, Chief Operating Officer,
  ------------------------                   Secretary and Director
  Steven Fialkow

   /s/ Robert P. Heller                      Vice President of Finance and Chief
  ------------------------                   Financial Officer (Principal 
  Robert P. Heller                           Financial and Accounting Officer)
  

  /s/  Ira Greifer, M.D.                     Director
  ------------------------ 
  Ira Greifer, M.D.

  /s/ Bernard Levine, M.D.                   Director
  ------------------------ 
  Bernard Levine, M.D.


   /s/ Robert Pordy, M.D.                    Director
  ------------------------ 
  Robert Pordy, M.D.

<PAGE>



                                                   Commission File No. 0-12927




                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    EXHIBITS

                                       to

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
                         FISCAL YEAR ENDED JULY 31, 1998


                         NATIONAL HOME HEALTH CARE CORP.



<PAGE>

                                 EXHIBIT INDEX

Exhibit                   Description
Number

3.1                      Certificate of Incorporation. Incorporated by reference
                         to the Registrant's  Registration Statement on Form S-1
                         (No.  2-86643) filed September 20, 1983 (the "1983 Form
                         S-1").
  
3.2                      Certificate    of   Amendment   to    Certificate    of
                         Incorporation.   Incorporated   by   reference  to  the
                         Registrant's  Annual Report on Form 10-K for the fiscal
                         year ended July 31, 1992 (the "1992 Form 10-K").
  
3.3                      By-laws.  Incorporated  by  reference  to the 1983 Form
                         S-1.
  
10.1                     1992 Stock  Option Plan.  Incorporated  by reference to
                         the  Registrant's  Annual  Report  on Form 10-K for the
                         fiscal year ended July 31, 1993 (the "1993 Form 10-K").

10.2                     Incentive Stock Option Plan.  Incorporated by reference
                         to the 1993 Form 10-K.

10.3                     Agreement  dated  January 1, 1994 between  Allen Health
                         Care  Services  and  VNS  Home  Care.  Incorporated  by
                         reference  to the  Registrant's  Annual  Report on Form
                         10-K for the fiscal year ended July 31, 1994 (the "1994
                         Form 10-K").

10.4                     Employment  Agreement  dated  as of  November  1,  1997
                         between the Registrant and Steven Fialkow. Incorporated
                         by reference to the  Registrant's  Quarterly  Report on
                         Form 10-Q for the fiscal quarter ended January 31, 1998
                         (the "January 31, 1998 Form 10-Q").

10.5                     Employment  Agreement  dated  as of  November  1,  1997
                         between  the   Registrant  and  Frederick  H.  Fialkow.
                         Incorporated  by reference to the January 31, 1998 Form
                         10-Q.

10.6                     Employment  Agreement  dated  as of  November  1,  1997
                         between   the   Registrant   and   Robert  P.   Heller.
                         Incorporated  by reference to the January 31, 1998 Form
                         10-Q.

10.7                     Employment  Agreement  dated  as of  November  1,  1997
                         between   the   Registrant   and   Richard    Garofalo.
                         Incorporated  by reference to the January 31, 1998 Form
                         10-Q.
<PAGE>


10.8                     Agreement   between  Division  of  Social  Services  of
                         Suffolk   County   and   Health    Acquisition    Corp.
                         Incorporated  by reference to the  Registrant's  Annual
                         Report on Form 10-K for the fiscal  year ended July 31,
                         1991.
  
10.9                     Agreement  between  Nassau County  Department of Social
                         Services and Allen Health Care  Services.  Incorporated
                         by reference to the 1992 Form 10-K.
 
10.10                    Agreement  dated  January  1,  1994  between   Catholic
                         Medical   Center   of   Brooklyn   and   Queens,   Inc.
                         Incorporated  by reference to the  Registrant's  Annual
                         Report on Form 10-K for the fiscal  year ended July 31,
                         1994.

10.11                    Letter dated June 1, 1992 from Public Health Council of
                         the  State of New York  Department  of Health to Health
                         Acquisition  Corp.  d/b/a Allen  Health Care  Services.
                         Incorporated by reference to the 1992 Form 10-K.

10.12                    Letter  from  Joint   Commission  on  Accreditation  of
                         Healthcare   Organizations  awarding  accreditation  to
                         Allen   Health   Care,   dated   September   20,  1993.
                         Incorporated by reference to the 1993 Form 10-K.

10.13                    The Registrant's  Employee Savings and Stock Investment
                         Plan under Section 401(k) of the Internal Revenue Code.
                         Incorporated  by reference to the  Registrant's  Annual
                         Report on Form 10-K for the fiscal  year ended July 31,
                         1997 (the "1997 Form 10-K").
 
10.14                    Letter  Agreement  dated  February 20, 1998 providing a
                         Secured  Advised  Line of  Credit  from the Bank of New
                         York to National Home Health Care Corp. Incorporated by
                         reference to the January 31, 1998 Form 10-Q.
 
10.15                    Letter  Agreement  dated  February 20, 1998 providing a
                         Secured  Advised  Line of  Credit  from the Bank of New
                         York to New England  Home Care,  Inc.  Incorporated  by
                         reference to the January 31, 1998 Form 10-Q.
 
21.1                     List of Subsidiaries.  Incorporated by reference to the
                         1997 Form 10-K.

23.1 *                   Consent of Richard A. Eisner & Company, LLP

27.1 *                   Financial Data Schedule

------------------
*  Filed herewith